Equity markets in Asia overnight all rallied, ending in positive territory with the Nikkei bouncing back from a two month low. This more upbeat mood was taken up today by European exchanges which saw the FTSE 100, German DAX & French CAC all gaining as details have been emerging on how the EU propose to bail out Greece. The latest news is that Germany and other Eurozone partners may be prepared to lend to Greece or buy its sovereign bonds should the need arise. However, it is unclear whether this would be formally agreed at tomorrow’s summit. The response in the currency markets saw the dollar fall against the euro and rise against the Japanese Yen. The USDJPY tends to be positively correlated to investors’ appetite for riskier assets, with the Yen tending to lose more often when investors snap up stocks and commodities. With Japan’s interest rates among the lowest of the major countries, and expected to remain so for some time, traders borrow cheaply in yen to invest in higher yielding assets, making money on the difference in the so called carry trade.
Further evidence of this positive mood could be seen in the dollar index (DXY) which suffered its biggest fall since November although it has managed to recoup some these losses in today’s trading.
With precious little fundamental news markets & main stream news media have continued to focus on sovereign debt – Greece primarily but are now starting to include other countries: Spain, Turkey, UK, Portugal, Ireland & Dubai – which rather crually have been designated the STUPID ones, with tomorrow’s meeting in Brussels now being seen as crucial. Elsewhere sterling too has been taking a bit of battering on the back poor retail sales on Tuesday and comments today that the BOE could restart its bond buying programme (ie QE) if the economy requires further stimulus. This raises the possibility of a double dip recession & W shaped recovery.
Meanwhile the Aussie Dollar was sharply higher, along with most commodities, boosted by the news that measures were being taken to deal with the Greek debt problems.
While European equities have been responding favourably today Wall Street has not been quite so positive with the DOW just managing to hold over 10000 as it too waits for a resolution to the Greek debt crisis. Trading volumes have been very low and the index did fall during the Ben Bernanke testimony to the House financial services committee where he said that the Federal Reserve was discussing whether to communicate its policy stance through the interest rate it pays banks to store money at the Fed, as it begins to consider tightening credit in the wake of the recession. Given that the Fed’s programme is scheduled to end next month the question traders and investors need an answer to is who is going to start picking all that US debt – perhaps STUPID should be STUUPID – Spain, Turkey, UK, USA, Portugal, Italy & Dubai. The clue is below.
Good luck & good trading.
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